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Company influence on foreign aid disbursement: Is conditionality credible when donors have mixed motives?

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Author Info
Espen Villanger

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Abstract

When donors enforce conditionality upon recipients who do not implement the conditions, companies can suffer from cancellation of their contracts with the recipient when aid dries up. A strategic recipient may avoid implementing controversial conditions by only granting a contract to a company that puts pressure on the donor to keep aid flowing. In our model, each of these three agents takes account of each of the two other agents' actions. We show that this triadic structure can be crucial when explaining recipients' use of companies to influence donors to give aid unconditionally, and offer a time-consistent explanation for the failure of conditionality.

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Publisher Info
Paper provided by CMI (Chr. Michelsen Institute), Bergen, Norway in its series CMI Working Papers with number WP 2003:4.

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Length: 33 pages
Date of creation: 2003
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Handle: RePEc:chm:wpaper:wp2003-4

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Related research
Keywords: Triadic Foreign aid Credibility Fungibility Samaritan's dilemma;

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Find related papers by JEL classification:
E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
F35 - International Economics - - International Finance - - - Foreign Aid

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  1. Jan Isaksen, 2002. "Energy cooperation in Southern Africa: What role for Norway?," CMI Working Papers WP 2002:4, CMI (Chr. Michelsen Institute), Bergen, Norway. [Downloadable!]
  2. Svensson, Jakob, 2000. "When is foreign aid policy credible? Aid dependence and conditionality," Journal of Development Economics, Elsevier, vol. 61(1), pages 61-84, February. [Downloadable!] (restricted)
  3. C-J. Dalgaard & H. Hansen, 2001. "On Aid, Growth and Good Policies," The Journal of Development Studies, Taylor and Francis Journals, vol. 37(6), pages 17-41, August. [Downloadable!] (restricted)
  4. Abreu, Dilip, 1988. "On the Theory of Infinitely Repeated Games with Discounting," Econometrica, Econometric Society, vol. 56(2), pages 383-96, March. [Downloadable!] (restricted)
  5. Svensson, Jakob, 2000. "Foreign aid and rent-seeking," Journal of International Economics, Elsevier, vol. 51(2), pages 437-461, August. [Downloadable!] (restricted)
  6. Dollar, David & Svensson, Jakob, 2000. "What Explains the Success or Failure of Structural Adjustment Programmes?," Economic Journal, Royal Economic Society, vol. 110(466), pages 894-917, October. [Downloadable!] (restricted)
    Other versions:
  7. Odd-Helge Fjeldstad, 2002. "The fight against corruption and the role of parliamentarians," CMI Working Papers WP 2002:6, CMI (Chr. Michelsen Institute), Bergen, Norway. [Downloadable!]
  8. Craig Burnside & David Dollar, 2000. "Aid, Policies, and Growth," American Economic Review, American Economic Association, vol. 90(4), pages 847-868, September. [Downloadable!] (restricted)
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  9. Pedersen, Karl R, 1996. " Aid, Investment and Incentives," Scandinavian Journal of Economics, Blackwell Publishing, vol. 98(3), pages 423-38.
  10. Basu, Kaushik, 1986. "One Kind of Power," Oxford Economic Papers, Oxford University Press, vol. 38(2), pages 259-82, July. [Downloadable!] (restricted)
  11. Henrik Hansen & Finn Tarp, 2000. "Aid effectiveness disputed," Journal of International Development, John Wiley & Sons, Ltd., vol. 12(3), pages 375-398.
  12. Summers, Lawrence H & Pritchett, Lant H, 1993. "The Structural-Adjustment Debate," American Economic Review, American Economic Association, vol. 83(2), pages 383-89, May.
  13. Ivar Kolstad, 2003. "The evolution of social norms," CMI Working Papers WP 2003:1, CMI (Chr. Michelsen Institute), Bergen, Norway. [Downloadable!]
  14. Trumbull, William N & Wall, Howard J, 1994. "Estimating Aid-Allocation Criteria with Panel Data," Economic Journal, Royal Economic Society, vol. 104(425), pages 876-82, July. [Downloadable!] (restricted)
  15. Hatlebakk, Magnus, 2002. "A new and robust subgame perfect equilibrium in a model of triadic power relations," Journal of Development Economics, Elsevier, vol. 68(1), pages 225-232, June. [Downloadable!] (restricted)
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  16. Hansen, Henrik & Tarp, Finn, 2001. "Aid and growth regressions," Journal of Development Economics, Elsevier, vol. 64(2), pages 547-570, April. [Downloadable!] (restricted)
  17. Ussif Rashid Sumaila & Joseph Apaloo, 2002. "A selected survey of traditional and evolutionary game theory," CMI Working Papers WP 2002:7, CMI (Chr. Michelsen Institute), Bergen, Norway. [Downloadable!]
  18. Alesina, Alberto & Dollar, David, 2000. " Who Gives Foreign Aid to Whom and Why?," Journal of Economic Growth, Springer, vol. 5(1), pages 33-63, March. [Downloadable!] (restricted)
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  19. Odd-Helge Fjeldstad, 2002. "Fighting fiscal corruption: The case of the Tanzania Revenue Authority," CMI Working Papers WP 2002:3, CMI (Chr. Michelsen Institute), Bergen, Norway. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Espen Villanger, 2004. "Powerful donors and foreign policy: The role of multilateral financial institutions," CMI Working Papers WP 2004: 12, CMI (Chr. Michelsen Institute), Bergen, Norway. [Downloadable!]
  2. Espen Villanger, 2003. "Company interests and foreign aid policy: Playing donors out against each other," CMI Working Papers WP 2003:5, CMI (Chr. Michelsen Institute), Bergen, Norway. [Downloadable!]
  3. Odd-Helge Fjeldstad, 2003. "What has trust got to do with it? Non-payment of service charges in local authorities in South Africa," CMI Working Papers WP 2003:12, CMI (Chr. Michelsen Institute), Bergen, Norway. [Downloadable!]
  4. Mavrotas, George & Villanger, Espen, 2006. "Multilateral Aid Agencies and Strategic Donor Behaviour," Working Papers DP2006/02, World Institute for Development Economic Research (UNU-WIDER). [Downloadable!]
  5. Kilby, Christopher, 2005. "World Bank Lending and Regulation," Vassar College Department of Economics Working Paper Series 66, Vassar College Department of Economics. [Downloadable!]
    Other versions:
  6. Odd-Helge Fjeldstad & Florida Henjewele & Geoffrey Mwambe & Erasto Ngalewa & Knut Nygaard, 2004. "Local government finances and financial management in Tanzania," CMI Working Papers WP 2004: 7, CMI (Chr. Michelsen Institute), Bergen, Norway. [Downloadable!]
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